Private Lending: The Gap-Year Income Strategy Nobody Talks About

If you're planning to retire before 59½, you've got a real problem that most retirement calculators quietly ignore: how do you fund your life during the years before your tax-advantaged accounts open up? I've written about gap-year strategies before — Roth ladders, taxable brokerage accounts, cash reserves. Today I want to talk about one that doesn't get nearly enough attention: private money lending.

I'll be upfront. This one is personal. I've done it myself. And I'm going to mention a specific operator I trust — someone I know personally — because I think that's more useful than a generic "here's a thing that exists" post. More on that in a minute.

What Is Private Money Lending?

Private money lending — sometimes called private lending, PML, or Hard Money Lending — is exactly what it sounds like. You loan your money directly to a borrower, and they pay you interest. No bank in the middle. No stock market. Just a loan agreement, a borrower, and a lien on real property as collateral.

In practice, most private lending in this space funds real estate deals — fix-and-flips, construction projects, short-term bridge loans for investors who need to move fast. The borrower is typically a real estate investor who can't or doesn't want to wait on a bank. They pay a higher rate in exchange for speed and flexibility. You, the lender, receive that interest — typically secured by a first-position lien on the property, meaning if the borrower defaults, you have a claim on the asset.

Returns in the 9–10% range are common. Loan terms are often short — six months is typical — so your money isn't locked up indefinitely.

Why It's Interesting for Early Retirees

Most gap-year strategies involve either spending down taxable accounts or living on cash and waiting. Private lending offers a third option: put some of your gap-year capital to work at a fixed rate that blows past what any HYS account will pay you, backed by a hard asset rather than faith in a bank.

The short loan terms are key here. If you're funding a 6-month fix-and-flip loan, you're not illiquid for years. You get paid, and you decide whether to roll into another deal or park the money elsewhere. That flexibility matters when you're managing cash flow without a paycheck.

There's also an angle that's directly relevant to retirement planning: you can do this inside a self-directed IRA (SDIRA) or Solo 401(k). Instead of your retirement funds sitting in index funds, they fund a real estate loan and earn interest — tax-deferred or even tax-free in a Roth structure. That's a significant compounding advantage if you can find the right operator and understand the rules.

Let's Be Honest About the Risks

I run a site called CrankyEarl. I am not going to pretend this is a savings account with a better interest rate. It is not. Here's what you're actually taking on:

• Default risk. Borrowers can fail to repay. The lien gives you recourse, but foreclosing on a property takes time, costs money, and is not fun. Your capital can be tied up.
• Illiquidity risk. Your money is committed for the loan term. You can't hit a button and get it back tomorrow like you can with a HYS account.
• Concentration risk. If you're putting a meaningful chunk of your gap-year reserves into a single loan or a small number of loans, one bad deal hurts.
• Recession correlation. This is the one that keeps me honest. Private lending feels decorrelated from the stock market on a normal day — and in many ways it is. But a bad recession, which is exactly the scenario that creates sequence-of-returns risk in my calculator, also spikes real estate default rates. The decorrelation you feel in calm markets shrinks when it matters most.
• Operator risk. Your returns depend heavily on who is underwriting the loans. Their judgment about borrowers and collateral values is what stands between you and a problem. This is why knowing and trusting your operator is not optional — it's the whole ballgame.

I am not telling you to put your entire gap-year fund here. I'm saying it's a real tool that belongs in the conversation alongside Roth ladders and taxable brokerage accounts — if you understand what you're getting into.

The Person I Actually Trust: Kevin Felmlee at Warbucks Capital

I met Kevin through our daughters' sports teams. Not at a networking event. Not through a referral from some financial influencer. At a field, like regular people. That context matters to me because I got to watch how he operates as a person before I ever thought about money.

Kevin has been doing this for over 20 years. He started investing in real estate in 2002, built a rental portfolio, and eventually shifted his focus to private lending. He knows the borrower side of these deals intimately because he's been on it. That's not a marketing claim — it's the reason his underwriting is grounded in how these deals actually work on the ground.

What I find particularly relevant for this audience is that Kevin also consults on SDIRAs and Solo 401(k)s — helping people set up the account structures that allow retirement funds to participate in private lending legally and efficiently. That's a niche skill set. Most private lenders just want your money. Kevin actually helps you understand the vehicle.

How Does This Fit Into Your Retirement Math?

If you run my retirement calculator, you'll notice that gap-year funding sources are one of the trickier variables to model. The calculator assumes your non-retirement assets are invested and growing at a rate you specify. Private lending can be a legitimate input for that rate — but it should be sized appropriately and treated as one piece of a diversified gap-year strategy, not the whole thing.

A reasonable approach: keep 6–12 months of actual living expenses in a liquid HYS account as your true emergency buffer. Put a portion of your additional gap-year capital into short-term private loans where you can earn meaningfully more. The rest stays in whatever mix of taxable investments fits your overall plan. You're layering return potential without betting everything on any single bucket.

The math works better than most people think — but only if you stay honest about the risks and size your exposure accordingly.

Bottom Line

Private lending is not a secret weapon. It's a tool with a specific risk profile that fits certain situations — particularly early retirement gap-year planning — better than most people realize. The returns are real, the risks are real, and the difference between a good outcome and a bad one comes down almost entirely to who is managing the loans.

I've shared who I trust because I think a concrete referral is worth more than a theoretical overview. Do your own homework. Talk to Kevin or whoever you're considering. Understand what you're backing before you wire anything.

And if you haven't stress-tested your retirement plan against a bad sequence of returns, go do that first. Everything else is secondary to knowing whether your plan survives the scenarios that actually hurt people.

— Earl